Analyses　in　the　fields　of　environmental　and　innovation　research　have　hindered　our　understanding　of　the　real　effects　of　external　drivers　of　firms＇　green　innovation　and　sustainability　behaviors　on　financial　performance.　This　study　compares　the　ways　in　which　two　different　external　factors　drive　firms　to　be　green　innovative:　environmental　regulation　and　market　turbulence.　By　dividing　green　innovation　into　green　process　innovation　and　green　product　innovation,　we　propose　that　environmental　regulation　increases　financial　performance　mainly　through　green　process　innovation　rather　than　through　green　product　innovation,　and　market　turbulence　affects　financial　performance　mainly　through　green　product　innovation　rather　than　through　green　process　innovation.　The　results　of　an　empirical　analysis　based　on　a　mediation　model　and　panel　data　on　472　Chinese　listed　firms　for　2006–2017　lend　support　to　our　hypotheses.　Our　study　contributes　to　the　green　innovation　management　and　sustainability　literature　by　offering　a　holistic　framework　for　examining　how　firms　pursue　green　innovation　and　sustainability　in　response　to　two　different　forms　of　external　pressure.　©　2020　ERP　Environment　and　John　Wiley　&　Sons　Ltd